'Candy Crush' Maker King Digital May Have Just Waved The White Flag On Its Future

King Digital, which makes the popular "Candy Crush" mobile game,
was down more than 25% in after-hours trade on Tuesday
after announcing a surprising $150 million special dividend.

King Digital's net income in the second quarter totaled
$161.7 million, and the company reported $832.2 million of cash
and cash equivalents at the end of the quarter.

So it isn't like the company doesn't have the funds to pay
out a dividend, which is worth $0.469 per share outstanding
and is payable on Sept.
30, but a large payout from a company that recently went public
is a surprising move.

Essentially,
King Digital just paid out its entire first quarter earnings in
the form of a dividend. This payout could be read a few different
ways.

For one,
investors could see it as a reward, given that the stock has
closed above the $22.50 initial offering price just once in five
months though its cash position is still fairly strong.

Another way to
see the payout is King Digital waving the white flag on its
future. The company's "Candy Crush" game has been a massive
success, but following up a hit of that caliber with another is a
huge ask for any company.

There's also the matter of the company's post-IPO lock-up
expiration.

On Twitter, CNBC's
Carl Quintanilla, citing comments from analysts at Pacific
Crest, said that 93% of King Digital shares are impacted the
Sept. 22 lock-up expiration that looms. A lock-up expiration is
the first date that insiders can sell their stake in a company
after its IPO, and so this dividend could be seen as a way to
keep investors in from selling their stake.

In its
earnings release, King Digital added that: "In addition, the
Company's executive officers, directors, founders, and affiliated
funds, including Bellaria Holding S.a.r.l of whom Apax WW
Nominees Ltd is the sole shareholder, together representing 80%
of outstanding shares, have agreed to a new lock up with the
Company through the date following the Company's announcement of
fourth quarter and full year 2014 earnings."

The
read-through on this announcement could be that the company
expects the remaining 13% of shares impacted by the lock-up
expiration to be sold into the market.

In addition to the dividend announcement, King Digital said that
in Q2, the company earned $0.59 per share, which was in-line with
analyst expectations. Bookings were also better
than expected, coming in at $611 million against expectations for
$606 million.

King said
bookings would slow in the third quarter, with the company
expecting bookings of $500 million to $525 million, with
full-year bookings of $2.25 billion to $2.35
billion.

With a decline
of more than 23%, King Digital has had more than $1 billion taken
off its total market capitalization in just a few minutes after
this report.